Date: 19990412
Docket: A-869-97
CORAM: STRAYER J.A.
LINDEN J.A.
ROBERTSON J.A.
B E T W E E N:
COCA-COLA LTD. and COCA-COLA BOTTLING LTD.
Appellants
(Plaintiffs)
" and "
MUSAADIQ PARDHAN c.o.b. as UNIVERSAL EXPORTERS
1106972 ONTARIO LIMITED c.o.b. as UNIVERSAL EXPORTERS
and JOHN DOE and JANE DOE and
OTHER PERSONS UNKNOWN TO THE PLAINTIFFS WHO
OFFER FOR SALE, SELL, EXPORT, OR DEAL IN
TRANSSHIPPED COCA-COLA PRODUCTS
Respondents
(Defendants)
HEARD at Toronto, Ontario on Tuesday, March 2, 1999
JUDGMENT delivered at Ottawa, Ontario on Monday, April 12, 1999
REASONS FOR JUDGMENT BY: STRAYER J.A.
CONCURRED IN BY: LINDEN J.A.
ROBERTSON J.A.
Date: 19990412
Docket: A-869-97
C O R A M: STRAYER J.A.
LINDEN J.A.
ROBERTSON J.A.
B E T W E E N:
COCA-COLA LTD. and COCA-COLA BOTTLING LTD.
Appellants
(Plaintiffs)
" and "
MUSAADIQ PARDHAN c.o.b. as UNIVERSAL EXPORTERS,
1106972 ONTARIO LIMITED c.o.b. as UNIVERSAL EXPORTERS,
and JOHN DOE and JANE DOE and
OTHER PERSONS UNKNOWN TO THE PLAINTIFFS WHO
OFFER FOR SALE, SELL, EXPORT, OR DEAL IN
TRANSSHIPPED COCA-COLA PRODUCTS
Respondents
(Defendants)
REASONS FOR JUDGMENT
STRAYER J.A.
Introduction
I. This is an appeal from the decision of Wetston J. of November 27, 1997 striking out the statement of claim of the appellants in an action for damages for infringement of their trade marks and the depreciation of the value of the good will attached to those trade marks.
Facts
II. This action was commenced on December 19, 1995. The facts as alleged by the appellants, which we must assume to be true for present purposes, indicate that the appellants Coca-Cola Ltd. ("CCL") and Coca-Cola Bottling Ltd. ("CCB") are, respectively, the owner or licensor of Coca-Cola trade marks registered in Canada and the licensee-manufacturer of Coca-Cola products in Canada. The respondents "distribute, store, ship, transship and export from Canada" products manufactured by CCB. There is no allegation that they sell such goods in Canada.
III. On the day the action was commenced the appellants obtained a "Preservation Order" from Joyal J., presumably to preserve evidence, and on January 8, 1996 they obtained an interlocutory injunction. On July 29, 1997 they sought a further Preservation Order.
IV. On March 12, 1996 the respondents filed a revised statement of defence and counter-claim. In that statement of defence they did not plead that some or all of the statement of claim disclosed no reasonable cause of action. It was not until June 2, 1997 that they brought the notice of motion which is in question here. That notice of motion sought, inter alia an order striking paragraph 12, the second sentence of paragraph 17, the first sentence of paragraph 18, and the whole of paragraphs 19, 20, 21, 22, and 25 of the statement of claim. Those paragraphs read as follows:
| 12. CCL and CCB have consistently complied with Canadian legislation in relation to the Consumer Packaging and Labelling Act, and regulations promulgated thereunder in respect of its products sold under the COCA-COLA Trade Marks. Canadian retail stores who purchase COCA-COLA products are entitled to expect that COCA-COLA products comply with all Canadian laws relating to packaging and labelling. |
| * * * * * * * * * * * * * * * |
| 17. The products offered for sale, sold, exported, distributed and shipped from Canada by the Defendants (hereinafter the "Transshipped Products") are products manufactured by CCB solely for use in the Canadian marketplace. Sale of the Transshipped Products outside Canada constitutes a violation of the license agreement between CCL and CCB and is a violation of the trade-mark rights of those who own the famous COCA-COLA Trade Marks in other jurisdictions. (Impugned sentence emphasized). |
| * * * * * * * * * * * * * * * |
| 18. The COCA-COLA products being transshipped by the defendants are packaged and labelled only for sale in Canada. The product containers identify CCL as the manufacturer and trade-mark owner of the transshipped product. (Impugned sentence emphasized). |
| * * * * * * * * * * * * * * * |
| 19. The Defendants have failed to: |
| (a) ensure that the COCA-COLA product is labelled in accordance with the laws of the country where the goods are to be delivered; |
| (b) obtain the necessary licenses in order to sell COCA-COLA products in other jurisdictions. |
| * * * * * * * * * * * * * * * |
| 20. Use by the Defendants of the COCA-COLA Trade-Marks on the COCA-COLA products in the manner described has caused and continues to cause deception and confusion between the unauthorized use of the COCA-COLA Trade-Marks by the Defendants and the legitimate authorized use of the COCA-COLA Trade-marks by CCL and CCB. |
| * * * * * * * * * * * * * * * |
| 21. By reason of the acts of the Defendants, the Defendants have and are continuing to infringe and are deemed to infringe the COCA-COLA trade-marks contrary to Section 19 and 20 of the Trade-marks Act. |
| * * * * * * * * * * * * * * * |
| 22. The Defendants' illegal activities seriously depreciate the value of the goodwill attached to the COCA-COLA Trade Marks, contrary to Section 22(1) of the Trade-marks Act. |
| * * * * * * * * * * * * * * * |
| 25. The Plaintiff pleads and relies upon the provisions of the Consumer Packaging and Labelling Act, R.S.C. 1985, c.C.38, and the Consumer Packaging and Labelling Regulations, C.R.C. c.417. |
V. As the respondents had pleaded over the now-impugned statement of claim, the motions judge held that they were precluded from moving to strike under former Rule 419 except on the ground in paragraph 419(a): namely that the impugned paragraphs disclose no reasonable cause of action. Proceeding on that basis he found paragraphs 17, 18, 19, 21, and 22 to disclose no reasonable cause of action. He then concluded as follows:
| [32] During the hearing the parties agreed that if the Court determined that the above paragraphs should be struck, those paragraphs would constitute the core of the action. Therefore, it is plain and obvious that the action cannot succeed. As such, the entire statement of claim shall be struck, without leave to amend . . . . |
VI. Wetston J. did not dismiss the action nor had he been asked to do so. Subsequently a motion was brought before MacKay J. who on May 2, 1998 dismissed the action because of the decision of Wetston J. now under appeal before us, and he dissolved the interlocutory injunction. His decision is also under appeal in file A-335-98 which was heard by us at the same time. It was understood that the disposition of that appeal would be determined by our decision with respect to the appeal of the order of Wetston J.
Issues
VII. It appears to me that the following issues require determination:
| (1) Was Wetston J. correct in entertaining the motion to strike when the respondents had pleaded over the pleadings of the appellants some fifteen months before moving to strike the latter? |
| (2) Should Wetston J. have refused to entertain the motion to strike because of delay? |
| (3) Did Wetston J. commit errors of law in the interpretation of the term "use" as found in the Trade-marks Act, thus erroneously interpreting the meanings of sections 19 and 20 and subsections 4(3) and 22(1) and thereby wrongly striking out certain of the allegations in the statement of claim? |
| (4) Did Wetston J. err in striking out the whole statement of claim without giving the appellants leave to amend? |
Analysis
(1) Pleading Over
VIII. In my view Wetston J. correctly applied the established jurisprudence of this Court to the effect that, while normally an application to strike a pleading should be brought before pleading over it, it is permissible to bring a motion to strike at any time under paragraph 419(a) of the former Rules on the basis that the pleading discloses no reasonable cause of action. Wetston J. properly limited his consideration of the motion to that ground which meant, of course, that he could not consider any evidence but was limited to the language of the pleadings.
(2) Delay
IX. Wetston J. concluded that having regard to all the circumstances there was no undue delay and he declined to refuse a remedy on that ground. In my view this was a discretionary decision and the appellants have not demonstrated any basis on which this Court should reverse it.
(3)Was there "use" by the respondents giving rise to liability under sections 19 and 20
and subsections 4(3) and 22(1) of the Trade-marks Act?
X. Wetston J. found that there was no "use" by the respondents because of the doctrine of first use. He understood the jurisprudence to mean that if goods have been placed into trade channels by the owner of the trade-mark, and are subsequently acquired by another party in the ordinary course of business, that other party is not guilty of infringement if he resells the goods. As the learned motions judge said:
| The defendants have not produced counterfeit Coca-Cola products for sale locally or abroad. They have not used a confusing mark on similar cola products which they sold in Canada or exported for sale abroad. If the facts alleged by the plaintiffs are taken as proved, the defendants have merely purchased large quantities of genuine Coca-Cola products from a third-party retailer, and then exported them for sale abroad, against the obvious wishes of the plaintiffs. . . . |
Having concluded there was no use by the respondents the motions judge then was able to say that their activities did not come within the terms of sections 19 and 20 and subsections 4(3) and 22(1) of the Trade-Marks Act, each of which requires "use" by the defendant for liability to arise. Nor did he consider that the fact that the product was labelled by the appellants for resale only in Canada would somehow make the respondents liable pursuant to section 8 of the Act which he found to create merely a warranty between a transferor and transferee in a relationship of privity of contract.
XI. The relevant sections of the Act are as follows:
| 2. In this Act, "trade-mark" means
|
2. Les définitions qui suivent s'appliquent à la présente loi. "marque de commerce" Selon le cas:
|
| * * * * * * * * * * * * * * * * * * * * |
|
|
| 4.(1) A trade-mark is deemed to be used in association with wares if, at the time of the transfer of the property in or possession of the wares, in the normal course of trade, it is marked on the wares themselves or on the packgages in which they are distributed or it is in any other manner so associated with the wares that notice of the association is then given to the person to whom the property or possession is transferred. |
4.(1) Une marque de commerce est réputée employée en liaison avec des marchandises si, lors du transfert de la propriété ou de la possession de ces marchandises, dans la pratique normale du commerce, elle est apposée sur les marchandises mêmes ou sur les colis dans lesquels ces marchandises sont distribuées, ou si elle est, de toute autre manière, liée aux marchandises à un tel point qu'avis de liaison est alors donné à la personne à qui la propriété ou possession est transférée. |
| * * * * * * * * * * * * * * * * * * * * |
| 8. Every person who in the course of trade transfers the property in or the possession of any wares bearing, or in packages bearing, any trade-mark or trade-name shall, unless before the transfer he otherwise expressly states in writing, be deemed to warrant, to the person to whom the property or possession is transferred that the trade-mark or trade-name has been and may be lawfully used in connection with the wares. |
8. Quiconque, dans la pratique du commerce, transfère la propriété ou la possession de marchandises protant une marque de commerce ou un nom commercial, ou de colis portant une telle marque ou un tel nom, est censé, à moins d'avoir, par écrit, expressément déclaré le contraire avant le transfert, garantir à la personne à qui la propriété ou la psssession est transférée que cette marque de commerce ou ce nom commercial a été et peut être licitement employé à l'égard de ces marchandises. |
| 19. Subject to sections 21, 32 and 67, the registration of a trade-mark in respect of any wares or services, unless shown to be invalid, gives to the owner of the trade-mark the exclusive right to the use throughout Canada of the trade-mark in respect of those wares or services. |
19. Sous réserve des articles 21, 32 et 67, l'enregistrement d'une marque de commerce à l'égard de marchandises ou services, sauf si son invalidité est démontrée, donne au propriétaire le droit exclusif à l'emploi de celle-ci, dans tout le Canada, en ce qui concerne ces marchandises ou services. |
| * * * * * * * * * * * * * * * * * * * * |
| 20.(1) The right of the owner of a registered trade-mark to its exclusive use shall be deemed to be infringed by a person not entitled to its use under this Act who sells, distributes or advertises wares or services in association with a confusing trade-mark or trade-name, but no registration of a trade-mark prevents a person from making
in such a manner as is not likely to have the effect of depreciating the value of the goodwill attaching to the trade-mark. |
20(1) Le droit du propriétaire d'une marque de commerce déposée à l'emploi exclusif de cette dernière est réputé être violé par une personne non admise à l'employer selon la présente loi et qui vend, distribue ou annonce des marchandises ou services en liaison avec une marque de commerce ou un nom commercial créant de la confusion. Toutefois, aucun enregistrement d'une marque de commerce ne peut empêcher une personne:
(ii) soit toute description exacte du genre ou de la qualité de ses marchandises ou services, d'une manière non susceptible d'entraîner la diminution de la valeur de l'achalandage attaché à la marque de commerce. |
| 22.(1) No person shall use a trade-mark registered by another person in a manner that is likely to have the effect of depreciating the value of the goodwill attaching thereto. |
22(1) Nul ne peut employer une marque de commerce déposée par une autre personne d'une manière susceptible d'entraîner la diminution de la valeur de l'achalandage attaché à cette marque de commerce. |
XII. The respondents argued before us that either, as a matter of law, the activities of the respondents as alleged could not amount to use or in the alternative that they did not amount to actionable use. In either case, the doctrine of first use or of "exhaustion" was invoked: that is, once the appellants' goods, bearing the appellants' trade-mark, were sold by them in the course of trade, subsequent resale of those same goods bearing the same trade-mark could not constitute use or actionable use.
XIII. Counsel did not bring to our attention jurisprudence directly bearing on the meaning of the term "use" in the Trade-marks Act as it might apply to this particular problem of exportation of the goods of the owner of a registered trade-mark to which is affixed that trade-mark.
XIV. It seems to me that, viewing the Trade-marks Act as a whole and the fundamental purpose of trade-mark law, it must be concluded that such activity is not "use" within the purview of the Act, and in particular within section 19 which gives to the registered owner the exclusive right to use that mark throughout Canada.
XV. I begin with the opening sentence by Dr. Fox in The Canadian Law of Trade Marks and Unfair Competition1 as follows:
| The foundation of the law of trade marks is that when a person, knowing that goods are not made by a particular trader, sells them as and for the goods of that trader, he does that which injures that trader. |
In other words, the essence of the law of trade marks is to prevent deception as to the provenance of goods or services where the originator of those goods or services has adopted a distinguishing mark for them.
XVI. The definition of a trade mark in section 2, as quoted above, clearly indicates that the mark is "used" to distinguish the user's wares or services from those of another. Section 4, which is adopted by reference in section 2 as a definition of "use", indicates that use takes place when property is transferred with the trade mark on it, such trade mark by definition involving the identification of the originator of the goods.
XVII. Thus it can be seen that subsequent transactions in the goods in which the goods pass from one owner to another, with the trade mark intact identifying the originator of the goods, cannot be said to be "used" by the subsequent vendor for the purpose of distinguishing goods "manufactured . . . by him" from those manufactured by another, as required by the definition of trade mark in section 2.
XVIII. This view of "use" is reinforced by jurisprudence which emphasizes deception as a necessary element of infringement. In Imperial Tobacco Co. of India Ltd. v. Bonnan2 the respondents were selling goods manufactured by the British American Tobacco Company Ltd. in India, in competition with that company. The Judicial Committee of the Privy Council observed:
| The respondents, being unhampered by covenant, are selling goods manufactured by the British American Company as being what they are " namely, Wills' Gold Flake cigarettes manufactured by that company. There is no untruth and no attempt to deceive. . . . |
As the Judicial Committee also observed:
| There is nothing to prevent a tradesman acquiring goods from a manufacturer and selling them in competition with him, even in a country into which hitherto the manufacturer or his agent has been the sole importer. |
Therefore there was found to be no infringement.3
XIX. This jurisprudence has been followed by this Court in Smith & Nephew Inc. v. Glen Oak Inc. et al.4 In that case the respondent, who was licensed by a German company to sell NIVEA
products in Canada, sought an injunction to prevent the appellant, who was licensed by the German trade mark owner to manufacture and sell this product in Mexico, from importing the Mexican-made product into Canada. The injunction was granted by the Trial Division but was dissolved by this Court. This was treated as a pure question of law and the Court came to the conclusion that the respondents had no rights under the Trade-Marks Act to prevent such importation into Canada. Hugessen J.A. writing for the Court stated:
| Goods which originate in the stream of commerce with the owner of a trade mark are not counterfeit or infringing goods simply because they may have arrived in a particular geographical market where the trade mark owner does not with them to be distributed.5 |
After citing earlier jurisprudence to which I referred, Hugessen J.A. went on to say:
| In my view, the law in Canada is no different. Smith & Nephew as Canadian licensee and importer of goods bearing BDF's trade marks cannot complain of the sale in Canada of other goods which are also manufactured by or under license from BDF and bear the same trade marks. There can be no deception as to the origin of the goods, which are exactly what they purport to be. . . . |
XX. Thus the resale of goods manufactured by a trade mark owner, bearing the trade mark of the manufacturer, cannot realistically be said to be a use by the vendor to deceive the purchaser as to the provenance of the goods. As such, it cannot be the basis for an infringement action based on section 19 of the Act which confers on the trade-mark owner the exclusive right to use the trade-mark to identify his goods. In the present case there is no allegation of "use" in that sense by the respondent.
XXI. I am therefore in agreement with the motions judge that there was no "use" within the meaning of the Act on the part of the respondents, and therefore in my view an action against them based on sections 19 or 20 or on subsections 4(3) or 22(1) could not succeed. They are all premised on there being a "use" by a defendant.
XXII. With respect to subsection 4(3), the appellants argue that this creates some kind of automatic right of action based simply on the fact of export. It appears to me that the gravamen of subsection 4(3) is, not to deem that any exportation of goods bearing a trade-mark is a "use" of that trade-mark, but rather to provide that where there is actual use such use shall be deemed to have occurred "in Canada". I respectfully adopt the analysis of MacKay J. in Molson Companies Ltd. v. Moosehead Breweries Ltd. et al6 that the purpose of subsection 4(3) was to enable Canadian producers who do not make local sales, but simply ship their goods abroad, to show use in Canada for the purposes of obtaining registration of their trade-mark in Canada. This was thought to be important for them in obtaining registration abroad. Also, as the motions judge observed, subsection 4(3) could have importance in allowing actions for infringement against someone exporting counterfeit goods from Canada where no sales were made locally. But I do not believe that it had the effect of creating a "use" within the meaning of the Act where genuine goods of the trade-mark owner are being shipped from Canada.
XXIII. Wetston J. by implication also dealt with the allegation of infringement in paragraph 21 of the statement of claim founded on subsection 20(1), on the basis that there is no allegation that the use of the appellants' trade-mark on the appellants own goods was "confusing" (this term being defined in the Trade-marks Act, section 6).
XXIV. For the reasons stated above I see no error in the conclusion of the motions judge that subsection 22(1) could not provide a cause of action because there was no "use" by the respondents on the basis of the facts alleged in the statement of claim.
XXV. Notwithstanding the foregoing, the respondents contended before Wetston J. and before us that section 8 of the Trade-marks Act precludes a defendant from relying on the doctrine of exhaustion: that if the owner of a trade-mark has given notice to a defendant that he restricts the "use" of the product then the rights of the owner under section 19 to sue for use remain unimpaired. No jurisprudence was cited to us supporting this world-view of the rights of trade-mark owners. Nor does the language of section 8 support it. Wetston J. correctly, in my respectful view, held that section 8 merely creates an implied warranty, as between the transferor and transferee of goods, that the trade-mark affixed to them may be lawfully used in connection with the goods. That is, there must be privity of contract between a plaintiff and a defendant for such a warranty to be enforceable. No such privity is alleged in the present case. Further, the nature of the warranty is that the trade-mark may be lawfully "used" in connection with the goods and, for reasons stated above, the export by the respondents of Coca-Cola in containers bearing the Coca-Cola trade-mark could not amount to "use".
XXVI. For these reasons I am of the view that the learned motions judge correctly concluded that there was no "use" by the respondents giving rise to liability under subsections 4(3) or 22(1), or under section 19 or 20, of the Trade-marks Act.
XXVII. Although certain other findings of the motions judge were not seriously contested before us, I would just note my agreement with his conclusion that paragraphs 17, 18, and 19 reveal no reasonable cause of action in this Court. In particular in respect of paragraph 17, this Court cannot deal with the enforcement of license agreements which are not incidental to some trade-mark right before the Court, none having been alleged here. Nor is it for this Court to adjudicate on the rights of other owners of "the famous COCA-COLA Trade Marks in other jurisdictions".
(4) Should the Whole Statement of Claim be Struck Out Without Leave to Amend?
XXVIII. Addressing the first part of this question, the motions judge had specifically found that paragraphs 17, 18, 19, 21, and 22 disclose no reasonable cause of action. As quoted above, he concluded at paragraph [32] of his reasons by noting that during the hearing
| the parties agreed that if the Court determined that the above paragraphs should be struck, those paragraphs would constitute the core of the action |
He then went on to strike out the action. At the hearing of the appeal, counsel seemed to have different views as to what was agreed upon by counsel at the hearing before the motions judge. As we have no evidence on this matter, we must rely on the finding of the motions judge as to what happened and we take his statement to mean that there was an agreement that if "the core of the action" disappeared there could be no action. In any event, I believe this was a fair assessment of the statement of claim. It was not demonstrated to us in argument that there were free standing claims in the statement of claim which would support an action in this Court. I therefore see no error in principle on the part of the motions judge in striking the whole of the statement of claim.
XXIX. As to the second part of the question concerning a failure to allow the appellants to amend their statement of claim, I have been unable to find any indication in the material that the appellants ever asked for such leave. In any event, this is a matter for the discretion of the motions judge and no grounds of reviewable error in the exercise of that discretion have been brought to our attention.
* * * * * * * * * * * * * * * * * * * * *
XXX. Before closing I would note the argument of the appellants that the motions judge somehow erred by failing to take into account the fact that other judges had granted interlocutory orders in this matter where they assumed that there was a serious issue to be tried. A motions judge dealing with a motion based on paragraph 419(a) of the former Rules is not bound by such other decisions in associated interlocutory matters. Instead, he was obliged to deal with the very issue raised before him, and not raised in the other matters: namely that even assuming every thing alleged in the statement of claim to be true, there was in law no reasonable cause of action. Ever since American Cyanamid Co. v. Ethicon Ltd.7 it has been accepted that in respect of interlocutory injunctions and other similar orders the "serious question" test should only rarely involve an extensive examination of the merits of the case. A judge must form an impression based on a limited review of the issues as to whether the party seeking the order might have a case. In a motion to strike based on an alleged lack of a reasonable cause of action, on the other hand, a judge must take all the pleadings as proven and consider specifically and thoroughly whether the allegations could in law constitute a cause of action. I therefore fail to see any merit in the argument put forward by the appellants on this point.
XXXI. Finally, some emphasis was placed by counsel for the appellants on the fact that this was essentially a case of first impression in Canada, dealing as it does with "parallel exports" rather than "parallel imports". For that reason it was said that the Court should allow the matter to be tried. While I have weighed this carefully it appears equally possible to me that this may be a case of first impression because no one had imagined that a trade-mark owner could, through trade-mark law, assert the kind of restraints on trade which are asserted here. Whatever claims the appellants may be able to assert through the law of contract in Canada or abroad, or through trade-mark and consumer protection legislation abroad, in my view the motions judge was correct in his conclusions as to the availability of an action under the Trade-marks Act of Canada.
Disposition
XXXII. The appeal should therefore be dismissed with costs.
(s) "B.L. Strayer"
J.A.
I agree:
A.M. Linden J.A.
I agree:
J.T. Robertson J.A.
__________________2 1924 A.C. 755 at 762-63 (H. of L.).
3 See also Champagne Heidsieck v. Buxton (1930) 47 R.P.C. 28 at 36; Revlon Inc. v. Cripps & Lee Ltd. [1980] F.S.R. 85 at 113; Wella Canada Inc. v. Pearlon Products Ltd. (1984), 4 C.P.R.(3d) 287 (Ont. H.C.).